Fitch Affirms Copenhagen Airport at 'BBB '; Outlook Stable
The affirmation reflects CPH's solid traffic performance and stable cash flow generation, which should support progressive deleveraging over the medium term. The bullet debt structure entails refinancing risk, which is largely mitigated by the well-established access to bank and capital market as well as pro-active debt management and solid liquidity position.
In its analysis, Fitch also considers debt held at the group's holding company (Copenhagen Airports Denmark ApS (CAD), which is entirely serviced through dividend distributions from CPH (the group's operating company, or OpCo). We view the consolidated group credit profile as commensurate with 'BBB' and then rate CPH one notch higher to reflect the seniority of its debt in the group's capital structure.
KEY RATING DRIVERS
Revenue Risk - Volume: Midrange
CPH benefits from a strong origin and destination (O&D) base. The peak-to-trough traffic decline during the 2008-2010 crisis was broadly aligned with peers at 8.4%, concentrated in 2009 and followed by a quick recovery.
Traffic has steadily grown over the past years: passenger volumes were up by 3.1% and 6.5% in 2013 and 2014, and increased by 2% in the first nine months of 2015. This performance was largely driven by the airport's dynamic commercial strategy focused on further development of low cost carriers/ hybrid low-cost airlines such as Norwegian (18% of the traffic in 2014), EasyJet (5%) and, more recently, Ryanair (5%). Fitch will continue to monitor any retrenchment or consolidation of capacity that this high growth may trigger over the medium term.
The increasingly diversified airline mix also mitigates CPH's exposure to SAS AB, the airport's largest airline (42% of traffic in 2014). The airline is implementing a comprehensive restructuring and turnaround plan but there is still no visibility on the medium-term trend of its operating and financial performance. Fitch considers there is moderate downside risk from this exposure, which is mitigated by the mainly O&D nature of SAS traffic.
Revenue Risk - Price: Midrange
CPH's price risk is typical of a large European airport, with light-handed regulation providing solid visibility (tariffs tracking inflation) and offering more flexibility than most peers. The airport signed a new charges agreement with the airlines last year, securing flat tariffs in real terms for 2015-2019.
Infrastructure Development/Renewal Risk: Stronger
The facility is in good condition, has material capacity leeway (capacity for 30 million passengers potential versus current traffic of over 25 million) and the expected capital expenditure programme is materially above the regulatory requirements. The company also has experience in managing its asset base.
Debt Structure: Midrange
Fitch assessed the group's credit profile against a pro-forma debt structure, whereby all debt of CPH and CAD is assumed to rank pari-passu (the consolidated credit profile). The majority of debt is fixed rate (post swaps), which is a strong feature, and benefits from a solid set of covenants, limiting leverage at both the CPH and CAD level. CAD and CPH debt also includes restrictions on additional indebtedness.
CAD has a bullet debt maturity profile. However, its refinancing risk is limited as after the recent maturity extension of its bank facilities in mid-2015, there are no debt maturities until 2021.
CPH's debt is also bullet and its exposure to refinancing risk is mitigated by its structural seniority to CAD, well-diversified range of debt maturities and a track record of proactive and prudent debt management policy. The liquidity position is solid as it comprises cash on balance sheet (DKK47.1m/EUR6.3m at 31 Dec 2014) and committed undrawn bank lines for DKK1.8bn/ EUR241.3m as of Dec 2014. The liquidity position has further improved with the issuance of the DKK1,055m USPP due 2025 as part of the refinancing of the maturing DKK612m equivalent USPP tranche which fell due in Aug 2015..
Under Fitch's rating case, consolidated leverage is expected to remain at around 6.5x in 2015-2016 and moderately decrease towards 6.2x in 2017. For this calculation, CAD's debt was grossed up in order to account for its 57.7% ownership in CPH.
A close comparable to CPH (consolidated entity) in Fitch's EMEA rating portfolio is Brussels Airport Company S.A./N.V. (BAC). BAC's rating (BBB/Stable) has slightly lower leverage (5.8x maximum, 5.6x 5-year average for the Fitch ratings case) than the CPH group, although it is a single entity issuer/opco. Like CPH, Brussels Airport's main airline (Brussels Airlines) is under a turnaround process. Gatwick Airport Limited (BBB+/Stable) features a slightly worse track record in terms of resilience, but also has a slightly better financial profile (5.9x maximum, 5.8x 5-year average. for the Fitch rating case).
Consolidated leverage consistently below 6.0x under the Fitch Rating Case could prompt positive rating action.
Negative action could follow a restructuring of SAS that results in material capacity cuts at CPH.
An aggressive strategy of pushing down debt from CAD to CPH through extraordinary dividends would be neutral for the group rating but could lower CPH's rating. This risk would increase if CAD's refinancing prospects appear more uncertain or if the Danish government sells its shares to private shareholders.
A prolonged deterioration in the Scandinavian economy that materially affects the performance of the airport could also negatively weigh on the rating.
SUMMARY OF CREDIT
CPH owns and operates Copenhagen airport, the largest airport in Scandinavia and the wider Nordic region. As a publically-listed company (Copenhagen Stock exchange), CPH is predominantly owned by CAD and the Danish State with a small proportion subject to free float (3.2%). CPH holds freehold ownership of the airport asset.